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Swarthmore professor Barry Schwartz says rules and incentives are an “insurance policy against disaster, but [they don’t] produce excellence.” In the recent book, Practical Wisdom: The Right Way to Do the Right Thing, Schwartz and co-author Kenneth Sharpe, also a Swarthmore professor, say what is needed is not more bureaucracy. Instead, society needs the Aristotelian ideal that trumps all others — practical wisdom. Knowledge@Wharton recently sat down with Schwartz to discuss why individuals fail to do the right thing, what practical wisdom looks like in practice and what organizations can do to regain people’s trust.

An edited version of the transcript appears below.

Knowledge@Wharton: You note that there is a collective mistrust of the institutions that surround us. Why is that?

Schwartz: I don’t want to be monomaniacal about this. There are probably many reasons, not one, for this distrust of institutions. One that Ken and I focused on in writing Practical Wisdom is that we have come to the view as a society that when things are broken, the way to fix them is either by making more rules or by creating smart incentives…. If you make a lot of rules and you have somebody standing over people’s heads watching them to make sure that they actually obey the rules, then you don’t care what people’s motivation is. You have to follow the rules or you’re out.

[For example,] if schools don’t work, rigid curricula and scripts for teachers follow. Bonuses [follow] if your kids do well…. If the financial system is broken, change the incentive structure so that bankers stop ripping off their clients. The point of our book is that you will never get what you need and want out of any institution that matters by relying on rules and incentives. Rules and incentives are the booby prize. If you can’t count on anything else, then you impose rules and incentives. But you’ll never get what you want. It’s an insurance policy against disaster, but it doesn’t produce excellence. You need people of good character who want to do the right thing because it’s the right thing, who know how to figure out what the right thing is in this particular situation with this particular person and who are willing to improvise, take the initiative, risk being wrong — and all in the service of actually serving the mission of whatever activity they are in: teachers who want their kids to learn and be excited about learning, doctors who want their patients to be healthy and lawyers who want their clients’ interests to be well served and don’t need to be goaded either by rules or by incentives into achieving that.

We think that what we’re doing as a society instead is a very, very pale substitute for what’s needed. But you don’t hear anyone talking about the importance of character to the making of good teachers, good doctors, good bankers, good politicians or anything else.

Knowledge@Wharton: You say that practical wisdom is a better path. Can you tell us the source of that idea and what you mean by that?

Schwartz: The source of the idea, embarrassingly enough, is Aristotle. Aristotle was famous for being what’s called a virtue theorist. That is, the way you create good societies is by creating good people, and the way you create good people is by instilling in them the virtues. He had his own list of what the virtues are, and our list would be different from his, but the point is he thought that good societies depend on people of good character and that good character is something that can be trained.

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He had a big list of virtues, but he thought there was one particular virtue that was the master. That one he called practical wisdom. The reason was that courage is a virtue, but you can be too courageous. Then we don’t call it courage anymore; we call it recklessness. So what’s the right amount of courage? That requires wisdom. Honesty is a virtue. But so is kindness. Often you find yourself having to decide whether this is a situation that calls for honesty or one that calls for kindness. What enables you to figure that out? Wisdom is what enables you to figure that out.

For him, the way one scholar put it, these virtues are running around like unruly schoolchildren, and wisdom is what creates order out of this chaos and actually helps people to find what he called the mean, the right amount appropriate for this person and this situation. All we did in the book was try to take Aristotle’s ideas and translate them into a language that makes sense in the 21st century and apply them to the kinds of institutions and problems that we face in modern developed societies, as opposed to ancient Athens.

Knowledge@Wharton: You describe people who use practical wisdom in their lives, such as Luke, the janitor. Please tell us about his story.

Schwartz: This is work that was actually done by a psychologist named Amy Wrzesniewski who is visiting [at Wharton] this year. She’s on the faculty at Yale and was an undergraduate [at the University of Pennsylvania]. She started doing this work as an undergraduate at Penn. She was interested in how people craft their jobs, especially people who do what is called “dirty work,” the people who are invisible, the people we don’t notice.

She did a big study of hospital custodians at a major academic hospital. For a lot of them, there was a long list of job duties: 30 different things that you had to do as a janitor. When she started interviewing janitors, she found there were some who thought their job was just doing these 30 things: emptying trash, restocking shelves, washing floors and so on. But there was a nontrivial number who thought their job was doing whatever was necessary to provide aid and comfort to the professional staff, to the patients and to the patients’ families. The example of Luke involved a young man who was in a coma, apparently the result of a fight in which he got the tar beaten out of him. This young boy’s father was keeping a vigil all day every day, except that he would go out and smoke a cigarette now and then. Luke cleaned the kid’s room and washed the floor. But the dad was out smoking and didn’t see it. When the dad came up, he angrily accused Luke of not cleaning the boy’s room. The boy’s in a coma, so the boy wouldn’t [be able to say Luke had been there]….

Luke was angry, but he immediately suppressed the anger, and he said, “OK, I’ll take care of it.” He cleaned the room again. He cleaned it so that the boy’s father could see him clean it. He said in the interview that he understood he should have been angry, he could have been angry. But he finally decided, I can understand what this man is going through. Why not do something so he can see that he’s actually having an effect that contributes to the welfare of his son? So he cleaned the room again. It’s really an incredibly touching story because one doesn’t expect that kind of judgment and humanity from people who are basically invisible. These are the people nobody notices without whom the institutions wouldn’t function.

The reason Luke was able to do that, and he has colleagues who behave similarly, is that they weren’t being so closely supervised. They could do their job — the 30 things on their list — and still have time to do what they thought was their real job, which was to provide comfort and care to patients and their families. Imagine the hospital having financial difficulties and having to crack down and lay off staff. Now there are one-third fewer janitors than there used to be. All of a sudden, you have more responsibilities and you have to work faster and harder and you don’t have time. You have somebody breathing down your neck and you don’t have time to do what you think is your real job because there are just too many rooms to get clean and too many trash cans to empty.

Luke was blessed to be working in a time and in an environment in which his supervisors left him alone, so he could do both the job that was officially defined as his job and the job as he had crafted it and [which gave him] enormous satisfaction. When you asked him and people like him how hard is it to learn to do this job, they would say it takes a lot of experience to do this job. It doesn’t take a lot of experience to wash floors and empty trash cans. It takes a lot of experience to know how to intervene with patients and their families in a way that actually is comforting and helpful. You don’t want to be a loose cannon, and initially you probably are. Your well-intentioned efforts to make people feel better don’t work. Over time, you learn when to intervene, how to intervene and [what] small things you can do that make a big difference.

There’s another janitor we mention here in the book who … took it upon herself to change the pictures on the wall in this patient’s room. Who notices what pictures are on the wall in a hospital room? But she figured that maybe it would inspire this person to get a sense that there was actually progress being made, that things were changing if the environment wasn’t exactly the same hour after hour, day after day. Every couple of weeks she would take pictures from another room and put them in this room. This is not obviously part of her job description. People really do come up short when they hear this because they don’t expect it. They deeply admire it when they hear about it, and what I hope is that they ask themselves, “Well, how can I do something like that in my work?” I don’t know if they do ask themselves that question, but it would be nice if they did.

Knowledge@Wharton: Those are a couple of very interesting examples of how to act in an ethical way using the wisdom that you talk about in the book. But what about cases where the stakes are much higher, such as in the case of … Penn State’s Jerry Sandusky? Many people have been charged with keeping his crimes a secret. What can businesses do to help their employees do the right thing in cases like that?

Schwartz: What won’t do the job is giving lectures to people about business ethics or organizational ethics…. You need to exemplify the behavior that you want the people working with you and under you to display. You need to be a model of what it means to be an ethical organization and you need to be doing it all day, every day. There are very, very few organizations that I’m aware of that behave like that. There is a charter school movement that’s become national called the Knowledge Is Power Program (KIPP). They have had incredible results with inner-city kids. There are a couple of KIPP schools in Philadelphia. What the founders of KIPP realized, though they didn’t quite say it in that way at the time, is that the most important thing that kids need to learn is character. If you can teach them character, respect for knowledge, respect for the educational process, respect for the teacher, respect for one another, then teaching them how to add and subtract is trivial. If you can’t teach them that, then teaching them how to add and subtract is impossible.

The question is then how do you teach them that? The answer is you teach them that by showing it to them every minute of every day. That’s what KIPP teachers do. They are always teaching, and they know that they are always teaching. It’s incredibly demanding on them. It’s the secret sauce that produces these extraordinary results. That’s what people who run organizations need to do.

Knowledge@Wharton: It’s not the rule or the policy or the incentive to act in a certain way. It’s modeling certain ideals and behaviors within an organization. Is that right?

Schwartz: Yes, you need the power of good examples. You need to show people that you really do value ethical conduct, rather than just talking the talk and then ignoring unethical behavior. One reason why the bank catastrophes happened is that you have these CEOs of major banks who have become public figures. They go off and give speeches about the banks’ ethical commitments and commitments to rebuilding this city and the neighborhood and this that and the other thing. They know that two levels down in the hierarchy there is a manager whose job depends on the people he supervises making their margins. They don’t have to know how that manager gets that to happen. All they need to know is that the manager does get it to happen. If he doesn’t, out he goes.

It’s not just plausible deniability. It’s just complete indifference to what it takes to produce the results that you’re insisting that the people who work for you produce…. As long as that dynamic exists, you can forget about ethical speeches from corporate leaders because it will never actually have an impact on the way the people who are making the day-to-day decisions in the company operate.

Knowledge@Wharton: How can institutions regain our trust? Is that possible?

Schwartz: It’s not easy. You have to do it. You do it by doing the right thing in conspicuous ways. Slowly, bit by bit, episode by episode, you win back the trust of the community that depends on you. There’s nothing you can tell people that will or should earn their trust. You have to demonstrate it in the way you behave, which means you have to be in it for the long haul and be patient and win one victory at a time. With respect to some institutions, it’s hard to be optimistic. I don’t see what public educational institutions can do to regain the trust of the families who have not been well served by them. I don’t know what financial institutions can do to regain the trust of people who have not been well served by them. As far as I’m concerned, everybody in the ratings agencies should simply be thrown in jail and the keys to the jail thrown away. They so betrayed the public trust in their giving AAA ratings to every piece of crap under the sun. If people are paying attention, it will take a generation to regain the trust that got lost in the space of six months.

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